Brad DeLong: Worthy reads on equitable growth, September 22-28, 2020

Worthy reads from Equitable Growth:

1. All issues of differential social power become issues of life and death amid a pandemic. And in our economy and society, possessing money is the road to possessing social power. The surprising thing I find about today is that anything Heather Boushey says in her op-ed in USA Today last week is at all non-consensus. Read her “To recover from COVID-19 Recession, Americans need equitable economic growth,” in which she writes: “Small businesses—the corner store, cafe and diner, alongside the dry cleaner and dog groomer and all the rest—are the backbone of our communities and yet so fragile in this crisis. Indeed, policies that promote equitable growth across the income spectrum are essential if we want an economic recovery that is broad-based and sustainable. The pandemic has also unmasked all the ways that health care is a core economic issue. It starts with the right for workers to have proper protective equipment and be able to stay home when they are sick. These workplace issues have become a matter of life or death.”

2. This is a very useful, near real-time take on what is going on right now, out there in the U.S. economy: Read Austin Clemen, Raksha Kopparam, and Carmen Sahchez Cumming, “Equitable Growth’s household pulse graphs: September 2–14 edition,” in which we document: “More than 50 percent of respondents in households making less than $50,000 reported having experienced loss of employment income since March 13 … The number of workers filing for Unemployment Insurance benefits remains staggeringly high. Out of the major racial or ethnic groups, Black applicants have been the least likely to receive benefits … Nearly a quarter of Latinx, Black, and Asian respondents are behind on rent payments. Additionally, Black respondents are struggling to keep up with mortgage payments … This recession is also hitting those with lower levels of education hardest. More than half of those without a high school degree report having a somewhat or very difficult time paying for usual household expenses.”

3. Carl Shapiro and Hal Varian have long had great success by saying that the information-age economy raises little in the way of questions about antitrust that the First Gilded Age of the late 1800s did not. But that is not quite true. Facebook Inc., for example, poses competition-policy problems more complex and subtle than anything we faced in the Progressive Era. Read the new working paper by Michael Kades and Fiona Scott Morton, “Interoperability as a competition remedy for digital networks,” in which they write: “Addressing entry barriers created by network effects is critical to remedying a monopolization violation in a social network market (e.g. Facebook) … Interoperability is likely a necessary, but not necessarily a sufficient, condition for an effective remedy … in addition to other relief such as a divestiture, and indeed could be complementary to it, or stand on its own. In today’s internet-based network markets, interoperability carries no incremental costs … Developing an effective interoperability scheme from scratch will be challenging in the context of adjudication. Remedy details will be technical, but important, and time will be short. Moreover, interoperability affects multiple parties, not simply the litigants, which the court will want to consider. The adversarial process is poorly suited to addressing these tasks … This working paper describes the general competitive concerns that arise in digital platform markets with strong network effects, explains how requiring interoperability can remedy illegal monopolization by creating the potential for disruptive competition to arise and thrive, addresses how to make an interoperability requirement effective, discusses the problems or dangers of relying solely on adjudication for developing remedies for complex monopolization violations, and explores how rulemaking could ameliorate this challenges, including a proposed draft rule.”

Worthy reads not from Equitable Growth:

1. A huge amount—an absolutely huge amount—was lost when Harry Dexter White overrode John Maynard Keynes at Bretton Woods and placed responsibility for closing “fundamental disequilibria” on deficit countries alone. This policy mistake still haunts us. And odds are that it is about to haunt us again. Jeremy Bulow, Carmen Reinhart, Kenneth Rogoff, and Christoph Trebesch sound the alarm. Read “The Debt Pandemic,” in which they write: “The COVID-19 pandemic has greatly lengthened the list of developing and emerging market economies in debt distress. For some, a crisis is imminent. For many more, only exceptionally low global interest rates may be delaying a reckoning. Default rates are rising, and the need for debt restructuring is growing. Yet new challenges may hamper debt workouts unless governments and multilateral lenders provide better tools to navigate a wave of restructuring … So far, the pandemic shock has been limited to the poorest countries and has not morphed into a full-blown middle-income emerging market debt crisis. Thanks in part to favorable global liquidity conditions conferred by massive central bank support in advanced economies, private capital outflows have moderated and many middle-income countries have been able to continue to borrow … Yet … the riskiest period may still lie ahead. The first wave of the pandemic is not over … On top of the dramatic retreat in private funding, remittances from emerging market citizens working in other countries are expected to drop by more than 20 percent this year. At the same time, borrowing needs have skyrocketed.”

2. Well, a decade late and many dollars short we seem to have become the conventional wisdom! Would only that The Economist had listened to our arguments, and been on our side a decade ago! Read, “Governments can borrow more than was once believed,” in which the magazine writes: “The global financial crisis pushed rates around the world to near zero … In 2012 Larry Summers, a former American treasury secretary, and Brad DeLong, an economist, suggested a large Keynesian stimulus based on borrowing. Thanks to low interest rates, the gains it would provide by boosting the growth rate of GDP might outstrip the cost of financing the debt taken on … As the years went by and interest rates remained stubbornly low, the notion of borrowing for fiscal stimulus started to seem more tenable, even attractive … Governments ideally ought to make sure that new borrowing is doing things that will provide a lasting good, greater than the final cost of the borrowing. If money is very cheap and likely to remain so, this will look like a fairly low bar.”

3. I do not think we understand who the median effective investors in financial markets are, and why they think what they do. Read John Auther, “It’s a Weird World Where FANGs Are a Haven Asset,” in which he writes: “FANG popularity in large part rests on the perception that they are defensive. Thanks to their entrenched competitive position, and relative immunity to the pandemic, they are thought to offer safety. Meanwhile, the banks are the polar opposite. Aided by a positive economic cycle, banks also benefit from higher bond yields, which are nowhere to be seen … [Since] March … the 10-year Treasury yield … has oscillated … around that 0.666% level. This is strange because the Federal Reserve isn’t yet formally attempting to control 10-year yields, despite widespread speculation that it will start to do so before long. And views on inflation, usually a key component of nominal 10-year yields, have gone through huge changes during the 0.666% era.”

September 28, 2020


Brad DeLong


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